State Administration of Foreign Exchange, Circular on Issues Relevant to the Handling of the Renminbi-foreign Exchange Option Portfolio Business by Banks
国家外汇管理局关于银行办理人民币对外汇期权组合业务有关问题的通知
December 06, 2011 | BY
clpstaff &clp articles &Safe puts forward risk-reversal option portfolios.
Issued: November 8 2011
Applicability: For the purposes of this Circular, the term “option portfolio” means the portfolio that arises when a customer simultaneously purchases one and sells one renminbi-foreign exchange standard European option of identical currency, term and contract principal, including:
(1) foreign exchange put option portfolios: the customer, in respect of an actual future need to convert foreign exchange, purchases a foreign exchange put option with a relatively low strike price (here and hereinafter calculated using a unit of foreign exchange translated to renminbi) while simultaneously selling a foreign exchange call option with a relatively high strike price;
(2) foreign exchange call option portfolios: the customer, in respect of an actual future need to purchase foreign exchange, sells a foreign exchange put option with a relatively low strike price while simultaneously purchasing a foreign exchange call option with a relatively high strike price.
Main contents: Any operation by the customer on the option portfolio (including but not limited to execution of a contract, reverse position closing and selection of delivery method) must be carried out on the entire option portfolio, i.e. it may not be carried out on a single option transaction in the option portfolio, and the execution of a contract between the bank and the customer concerning the option portfolio business and any amendments thereto shall be reflected in the same written product confirmation.
Before the execution of an option portfolio contract, the bank shall require the customer to provide the underlying commercial contract and shall carry out the necessary review thereof so as to ensure that the handling of the option portfolio by the customer complies with the hedge principle.
A bank may elect to exercise the option it has purchased only if the customer decides to waive the exercise of the option it has purchased.
A bank that has secured qualifications to conduct renminbi-foreign exchange option transactions on the interbank foreign exchange market and the qualifications to engage in customer renminbi-foreign exchange option business, or a bank's (sub-) branch that has secured qualifications to engage in customer renminbi-foreign exchange option business (subject to the authorisation of its legal person (the branch of a foreign commercial bank is deemed a legal person)) may carry out option portfolio business for customers.
Related legislation: Circular on Issues Relevant to the Trading of Renminbi to Foreign Currency Options, Feb 14 2011, CLP 2011 No.2 p.37
clp reference:3700/11.11.08promulgated:2011-11-08This premium content is reserved for
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